The purpose of this study is to investigate the impact of litigiousness on the information role of accounting conservatism. Prior literature documents the information role of accounting conservatism, measured by the positive association between earnings conservatism and information asymmetry between inside managers and outside investors. Prior literature also demonstrates that shareholder litigation concerns motivate managers and auditors to be conservative in preparing financial statements because conservatism shields managers and auditors from allegations that they overstated earnings and net assets. In a more litigious environment, both managers and auditors have incentives to be more sensitive to expected litigation costs, which increase with the level of information asymmetry. I hypothesize that higher levels of litigiousness enhance the information role of accounting conservatism. Overall empirical results are generally consistent with the hypothesis. / Thesis (Ph.D, Management) -- Queen's University, 2010-09-29 17:59:20.556

This dissertation consists of three stand-alone but interrelated empirical studies investigating various aspects of the well-documented ??home bias anomaly?? in international investment. The findings help to understand the international investment allocation behaviour of mutual funds as well as their implications for asset pricing and mutual fund evaluation. The first study investigates the roles of various firm attributes that encapsulate the deadweight costs in determining firm level investment bias. The main findings suggest that firm characteristics related to transaction costs, corporate governance and information asymmetry create significant barriers for fund managers. In addition, foreign funds are more constrained than domestic funds by information asymmetry, even in developed and liberalized markets. Moreover, this study stylises the international investment allocation model in Cooper and Kaplanis (1986) with a quadratic cost function, which reveals the marginal influence of market level deadweight costs on the relationship between firm characteristics and investment bias. It is found that when market level cross-border barriers are exacerbated, as in the case of emerging and restricted financial markets, foreign fund managers become more sensitive to market level deadweight costs and ignore firm characteristics. In general, these findings imply that the market level ??home bias anomaly?? is an outcome of the complementary effects of investment barriers at both firm and market levels. The second study examines the role of firm level investment bias in predicting future stock returns. It is found that both firm level foreign and domestic biases contain valuable information with respect to firm prospects. However, domestic bias is more informative than foreign bias in terms of subsequent stock returns, partially because of information asymmetry. The third study explores the determinants of fund level investment bias and its ability to predict fund performance. It is found that fund portfolio attributes determine fund level investment biases after controlling for market and fund investment objective specific effects, and fund level investment bias is positively related to fund performance due to lower deadweight costs. Moreover, good macroeconomic environments foster the development of the mutual fund industry.

Thesis (Ph.D.)--Michigan State University. Dept. of Agricultural Economics, 2008. / Title from PDF t.p. (viewed on Apr. 1, 2009) Includes bibliographical references. Also issued in print.

The increase in the number of financial restatements in recent years has resulted in a significant decrease in the amount of market capitalization for restated companies. Prior literature does not differentiate between single and multiple restatements announcements. This research investigates the inter-relationships among multiple financial restatements, corporate governance, market microstructure and the firm's rate of return in the form of three essays by differentiating between single and multiple restatement announcement companies. First essay examines the stock performance of companies announcing the financial restatement multiple times. The postulation is that prior research overestimates the abnormal return by not separating single restatement companies from multiple restatement companies. This study investigates how market penalizes the companies that announce restatement more than once. Differentiating the restatement announcement data based on number of restatement announcements, the results support for non persistence hypothesis that the market has no memory and negative abnormal returns obtained after each of the restatement announcements are completely random. Second essay examines the multiple restatement announcements and its perceived resultant information asymmetry around the announcement day. This study examines the pattern of information asymmetry for these announcements in terms of whether the bid-ask spread widens around the announcement day. The empirical analysis supports the hypotheses that the spread does widen not only around the first restatement announcement day but around every subsequent announcement days as well. The third essay empirically examines the financial and corporate governance characteristics of single and multiple restatement announcements companies. The analysis shows that corporate governance variables influence the occurrence of multiple restatement announcements and can distinguish multiple restatements announcement companies from single restatement announcement companies.

I document that a significant number of insiders violate SEC reporting requirements by filing transactions after the legally required deadline. Although these violations are straightforward for the SEC to detect, instances of reporting violations persist. Prior to Sarbanes-Oxley, 29% of open market transactions fell outside the required reporting window. Following the enactment of SOX, 8% of all transactions continue to violate the filing deadline. During the filing delay trades are unknown to outside market participants and earn significant abnormal returns. I show that almost a quarter of filing violations are made by insiders that egregiously violate the reporting requirement. This subgroup realizes significantly greater abnormal returns for purchases and sales leading up to the reporting date. Most filing violations take place during periods of high information asymmetry, and insiders privately earn significant abnormal returns. Collectively, these findings indicate that a subgroup of insiders extract information rent from private knowledge during windows of unreported trading. The SEC reacts to numerous insiders disregard this reporting requirement by charging a small percentage of the total violators for wrongdoing. I employ a unique data set of SEC cases brought against top managers who fail to meet the filing requirements. By comparing the trades in indictments to similar non-indicted transactions, I assess that the SEC pursues insiders that violate the reporting requirement egregiously and are a manager at larger firms. While the coverage of these actions is thin, it significantly deters insiders from filing late after the enforcement. In addition, firm insiders may trade on private information concerning forthcoming innovations. Before high-quality innovations become public knowledge, I find that insiders significantly increase their holdings in the firm. After a patent for a breakthrough innovation is granted, the firm realizes significant abnormal returns. By insider, I find that members of the Corporate Suite increase their holdings around the application date and are the only insiders that earn significant abnormal returns following the grant date. These results suggest that key insiders can identify breakthrough patents ex-ante and utilize this information advantage before the innovation becomes public knowledge. These innovations translate into an increase in firm value.

Most studies of the investment-cash flow sensitivity hypothesis in the literature compare estimates of the sensitivity coefficients from cross sectional regressions across groups of firms classified into more or less financially constrained groups based on some measure of perceived financial constraint. These studies report conflicting results depending on the classification scheme used to stratify the sample. They have been criticized on conceptual and methodological grounds. In this study we mitigate some of these problems reported in the literature by using the insights from Cleary, Povel and Raith (2007) in a new research design. We test for the significances of the changes in the investment-cash flow sensitivity, in a time-series rather than cross sectional framework, for the same set of firms surrounding an exogenous shock to the firms' information asymmetry. The CPR (2007) model predicts an unambiguous increase (decrease) in investment-cash flow sensitivity when information asymmetry of the firm increases (decreases). Further, by examining the differences in the sensitivity coefficients we expect some of the biases in the coefficient from measurement errors in Q to cancel out. The two events we study are (i) the implementation of SOX which is expected to decrease information asymmetry from improved and increased disclosure and (ii) the deregulation of industries which is expected to increase information asymmetry largely from the lifting of price controls and entry barriers. We report that information asymmetry decreases following SOX and that there is a commensurate decrease in the investment-cash flow sensitivity, pre- to post SOX. The hypothesis that a greater change in investment cash flow sensitivity is associated with a greater change in information asymmetry is only weakly supported by the data. We also report that information asymmetry increases following deregulation with a commensurate increase in investment cash flow sensitivity, pre to post deregulation. The hypothesis of a greater increase in the sensitivity for subsamples with a greater increase in information asymmetry is not supported by the data. Overall, however, the study supports the investment-cash flow sensitivity hypothesis using a research design that corrects for some of the problems identified in the existing literature on the hypothesis. / Ph. D.

För att kommunicera med intressenter använder sig företag bland annat utav finansiella rapporter. Rådande lag reglerar stora delar av hur dessa rapporter ser ut, men samtidigt lämnas utrymme för företagen att själva avgöra hur omfattande rapporterna skall vara. Variationen i omfattningen av information i företagens rapporter väcker således intresset att undersöka varför företagen väljer att redovisa olika mycket information. En del forskare menar att det finns ett samband mellan mängden utgiven information och företagens kapitalkostnad. Beaktande av tidigare forskning blir syftet med studien att identifiera sambandet mellan avkastningskravet på eget kapital och upplysningsnivån i årsredovisningar samt delårsrapporter hos industriföretag noterade på Nasdaq OMX Stockholm. Vidare skall studien även ge en inblick i huruvida informationskällan påverkar sambandet, det vill säga om det finns eventuella skillnader mellan hur upplysningsnivåerna i årsredovisningar respektive delårsrapporter påverkar kapitalkostnaden. Studien avgränsas till perioden 1 januari 2015 till den 31 december 2015. Vidare avgränsas studien även till industriföretag noterade på OMX Nasdaq Stockholm. Studien omfattar 64 stycken företag, vilket inneburit att 128 stycken rapporter har använts. Samtliga rapporter har bedömts utifrån ett egenkonstruerat upplysningsindex. Vid de statistiska testerna för sambandet har variablerna Upplysningsnivå, Sidor samt Marknadsvärde testats gentemot Kapitalkostnad i korrelations- respektive regressionsanalyser. Ett negativt samband mellan upplysningsnivå och kapitalkostnad har uppvisats bland de utvalda företagen. Ett statistiskt signifikant samband mellan variablernas påverkan på kapitalkostnaden kunde inte fastslås. Det gick inte heller att se någon betydande skillnad mellan årsredovisningarnas påverkan på kapitalkostnaden jämfört med kvartalsrapporterna. / This paper examines if the level of voluntary disclosure in financial reports affects the cost of equity capital for industrial companies listed on Nasdaq OMX Stockholm. Furthermore, the paper aims to answer if there's a difference in how annual reports and more timely reports affect the cost of equity capital for the companies. We use a quantitative approach where we analyze the selected companies and their financial reports in correlation and regression tests. The study includes 64 companies whose reports are assessed by a self-constructed disclosure index. Our results indicate that voluntary disclosures in annual and more timely reports are associated with our proxy for companies cost of capital. Although our correlation tests show us that there is a negative association between the voluntary disclosures and our proxy for cost of capital, our regression models can’t identify any association. Furthermore, we can’t find a statistically significant difference in association between the voluntary disclosures in the annual reports or in the more timely reports and the proxy for cost of capital.The study is written in Swedish.

In chapter 1, I provide evidence against the claim in the conventional literature on corporate diversification discount that the diversification effect is homogeneous across the industries. I argue that the responsiveness of consumer demand to the changing economic conditions or the product demand sensitivity is an important characteristic of the industries that should be considered to have a more complete understanding of the issue of underperformance of diversified firms compared to single-segment firms. Differentiating industries based on the measure of product demand sensitivity, I show that the diversification effects are not to be homogeneous across the industries. Much of the value destroying effect from the diversification gets reduced when industry experiences any shock or increase in the sensitivity of demand. It implies a better shock observing capacity of diversified firms and a source of premium that conglomerates can enjoy due to their diversified operations during the periods of the increase of sensitivity of product demand. Our result is robust to difference specification and difference measure of sensitivity. In chapter 2, I include organizational forms as industrial and global diversification, and geographic dispersion in the empirical framework to find out which types of diversification do matter for the cost of bank loans. I find that firms which are only globally diversified, neither industrially diversified nor geographically dispersed, experience higher cost of bank loans. The other types of firms incurring higher cost of bank debt are the firms which are only geographically dispersed, and the firms which are diversified in all three ways with the combination of geographic, global, and industrial diversification. Examining the effects of organizational forms on the non-price loan terms, I observe that covenant restrictions are generally higher for the combination of diversified firms which are either both geographically dispersed and industrially diversified, or geographically dispersed and globally diversified.

The banking sector is central to the economy, but has recurrent dysfunctions. Following the Global Financial Crisis of 2007-2009, regulators have attempted to reform governance in banks. However, previous empirical studies on the effects of governance structures have important gaps. Using an econometric framework with novel simultaneous equations models and new dependent variables, I investigate whether corporate governance and ownership have significant effects on bank risk and performance. I employ a novel data set combining financial data from the Bankscope database with governance and ownership data collected painstakingly by hand from annual reports and Basel Pillar 3 disclosures of UK banks over the period 2003-2012. My findings are supported by interpretation of relevant literature and are summarised as follows (stated along with policy implications in parentheses for which features of banking should be encouraged, based on normative assumptions stated in section 9.3). My work shows that the effects of a particular ownership or governance structure can be attributed to the ways in which categories of decision-maker within the bank are empowered by that structure, and that factors relating to information processing capability have important effects. Mutual and foreign ownership each have negative effects on risk and return because of managerial incentives and information asymmetries, respectively, without either affecting provision of investment to the wider economy. A foreign parent also increases the probability of bank failure (implying mutuality is socially beneficial while foreign ownership is not). A higher NED ratio reduces the probability of bank failure, as does having a remuneration committee, because of greater accounting for risk in decisions (implying they are desirable). The presence of an independent Chairman increases risk because it weakens CEO accountability and confuses decision-making (implying it is undesirable). An independent CRO (as a full Board member) may have similar effects. A higher proportion of Directors with no previous financial services experience increases both returns and the probability of failure because of weaker use of information (implying it is undesirable). Permission to use IRB models lowers risk and return because it provides information to empower risk-averse agents, again without affecting credit provision to the wider economy (implying it is desirable). I report other novel findings on effects of ownership, governance, remuneration and size. These results can guide bank reform.

A presente dissertação parte de uma análise dos principais corpos regulatórios nacionais e internacionais da governança corporativa para buscar os traços essenciais que caracterizam tal sistema. Uma vez identificados os traços essenciais a partir dos elementos regulatórios, passa o texto a analisar os elementos caracterizadores da governança corporativa por meio das principais disposições doutrinárias sobre o tema. Após estabelecido um conceito funcional de governança corporativa, busca-se compreender as bases econômicas que originaram e auxiliaram no desenvolvimento do sistema da governança corporativa. A partir deste ponto são levantadas as principais Indagações acerca do funcionamento do mercado em um ambiente de informações assimétricas, ressaltando-se o impacto advindo dos agency costs. Finalmente, após levantados os problemas relacionados à assimetria de informação, essencialmente focados no agency problem, se propõe a dissertação a vincular o desenvolvimento do sistema da governança corporativa à mitigação dos problemas de assimetria de informação. / The present work starts from an analysis of the main national and international regulatory provisions in connection to corporate governance searching for the essential traces that characterize such system. Once the essential traces are identified by means of the regulatory elements, the dissertation moves on to analyze the characterizing elements of corporate governance through the main academic considerations on the subject. After a concept of corporate governance is reached, the intent of the works shifts to comprehending the economic basis that have originated and further developed the corporate governance system. From this point forward, the dissertation addresses the main questions on the working of markets under asymmetric information, mainly taking into consideration the impacts arising from the agency costs. Finally, after the problems related to asymmetric information are addressed, basically related to agency problems, the work deals with the objective of bonding the development of the corporate governance system with the reduction of the problems arising from asymmetric information.